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Yahoo agrees to sell Alibaba stake for $7.1bn

Deal reached to sell half of its holdings in Chinese e-commerce firm

Yahoo has agreed to sell its half of its stake in Chinese e-commerce firm Alibaba back to the company in a deal worth $7.1bn.

Yahoo currently holds a 40 per cent stake in Alibaba, but will be able to reduce this by half. The deal also includes provision for a share buy-back plan for Yahoo and a potential initial public offering by Alibaba.

Should Alibaba decide to float, Yahoo will have the option to sell its remaining stake at the public offering price.

Yahoo chief finance officer Timothy Morse said that the proceeds from the sale will be returned to shareholders. That could signify that Yahoo's new executive team could be set to break up the company as it sells off its assets.

The amount shareholders receive is dependent on Alibaba raising the funding to make the acquisition. Under the terms of the deal, it is obliged to buy back at least a quarter of Yahoo's stake regardless of the capital it is able to raise.

The companies also agreed to amend their existing technology licensing agreements, enabling Alibaba to operate Yahoo China under the Yahoo brand for up to four years. Alibaba will pay Yahoo an up-front fee of $550m and continue to make royalty payments for as long as it operates the brand.

The deal comes just days after Levinsohn took the reins as interim chief executive, following the departure of Scott Thompson under a cloud over claims he embellished his CV.